Withdrawing amounts above the minimum super pension requirement

Thinking of withdrawing extra amounts from your superannuation? Here’s what you should do.

Superannuation members with retirement phase pensions must withdraw money from their pension every year – but additional withdrawals can cause problems.

If you’re a superannuation member with a retirement phase pension, you must drawdown a minimum amount from your pension each year, based on your age and a percentage of your account balance.

While there is no limit on the maximum amount you can withdraw, additional payments can significantly affect your finances.

When contemplating any significant additional pension withdrawals (beyond the minimum requirement), it may be wise to arrange these as a commutation back to retirement phase, and then withdraw the lump sum.

Example: Annie

Let’s look at Annie’s case. Annie is 67. She started her retirement phase pension two years ago, with the full balance of her superannuation at $1.6 million. (Her Transfer Balance Cap was $1.6 million.) Annie still works on her family farm, helping her son, who runs the operation.

Minimum pension drawdowns and poor investment returns have reduced her account balance to $1.4 million.

Annie expects to inherit $200,000 next June; she intends to put the money in her superannuation fund as two non-concessional contributions of $100,000 spread over June and July.

She is also keen to help her daughter, who needs $200,000 to buy a home in the city.

Annie decides to withdraw an extra $200,000 from her superannuation now, and treat it as part of her daughter’s inheritance. This will be in addition to the usual minimum percentage drawdown which she uses for her general living expenses.

Annie can withdraw the extra $200,000 in two ways.

  1. She can take an additional pension amount of $200,000 from her retirement phase pension account;
  2. Or she can commute $200,000 of her retirement phase pension account back to accumulation phase, and then withdraw a lump sum of $200,000.

Both options provide the $200,000 for her daughter. Assuming she inherits the money next June, and that she continues to meet the “work test”, Annie should be able to contribute the $200,000 over June/July to build her superannuation fund back up to $1.4 million.

The outcome will, however, significantly differ, depending on which option she used to withdraw the $200,000.

If Annie takes the first option ($200,000 from her pension), her Transfer Balance Cap remains at $1.6 million. When she recontributes the $200,000, it will have to remain in accumulation phase; the related portion of income and capital gains derived from that portion of the fund’s total assets will be subject to ongoing tax. Annie will need an actuarial certificate each year to apportion the income between exempt current pension income and taxable income.

If she chooses the second option, Annie’s Transfer Balance Cap will reduce to $1.4 million when she makes the commutation. When she recontributes the $200,000, she can immediately start a further retirement phase pension, so that the entire fund is exempt from tax on all income and capital gains.

Annie’s best choice – and yours, too – would be to arrange a commutation back to retirement phase, and then withdraw the lump sum.

Remember that you must report pension commutations. You should also consider seeking professional advice where appropriate.

Bob Locke – Chartered Accountant & SMSF Specialist


The information provided in this article is general in nature and does not take into account your personal circumstances, needs, objectives or financial situation. This information does not constitute financial or taxation advice. Before acting on any information in this article, you should consider its appropriateness in relation to your personal situation and seek advice from an appropriately qualified and licensed professional.

ATO developing online trustee test

The ATO has announced it is developing an online SMSF trustee test that individuals would have to complete before they can legitimately establish an SMSF.

Speaking at the recent SMSF Trustee Empowerment Day 2019, ATO SMSF segment assistant commissioner Dana Fleming said: “We’ve been trying to think how can we get some more visibility or messaging around how important it is [for trustees] to do some education so you actually understand your risks and your obligations and that the penalties sit with you if something goes wrong.

“And so we are going to think about creating an online test where you complete a course or watch our videos [and afterwards] you could just do a simple test which will give you some comfort that you really are across the key risks and things you have to do.

“That’s in progress and when we’ve got that finalised we’ll probably introduce an upfront declaration for new trustees that they’ve read the material on our website and they’ve done the test.”

She stressed the test is being designed to give the SMSF regulator greater comfort that individuals embarking on running their own super fund are conscious of what is involved in doing so.

“This is not [going to be] a pass-fail situation. We’re just trying to raise people’s awareness and provide opportunities and easier ways for them to do that,” she noted.

The initiative is in line with one of the findings of the recent Productivity Commission review into the efficiency and competitiveness of Australia’s superannuation system, she pointed out.

“It did consider mandatory trustee education as an option, so if you want to be a trustee, you’d have to go and do an approved course, but decided to hold off on that for the time being and it put in place a couple of other measures,” she said.

“But it didn’t reject it out of hand and said if those recommendations don’t have an impact, potentially mandatory trustee education would be on the cards.”

Source: www.smstrusteenews.com.au

Can you take your SMSF overseas?

Moving overseas is never a simple undertaking. But the process of selling your property and tying up your affairs in Australia can become especially intricate if you’re a member of a self managed super fund (SMSF).

Australians love to travel and it’s not unusual for an Aussie to decide to pursue their career on the other side of the world.

According to the Australian Bureau of Statistics, there were over 7 million migrants living in Australia in 2018. In the year to 30 June 2018, 289,000 people left Australia to live overseas.

However, while many Australians dream about exploring personal and work opportunities overseas, there are several things to consider. This includes SMSF compliance.

If you’re an SMSF trustee and plan to go overseas for an extended period of time, the Australian Taxation Office (ATO) and Netwealth advise that you seek professional advice about maintaining the residency status of your fund.

Residency test

In order to be compliant in Australia, an SMSF must be an Australian super fund at all times.

Remember, if you fail the residency test, you’ll face severe consequences, as your fund will become non-complying.

There are three residency conditions that your fund must meet:

1. The fund was established in Australia, or at least one of its assets is located in Australia.

The fund was ‘established in Australia’ if the initial contribution to establish the fund was paid and accepted in Australia.

2. The central management and control of the fund is ordinarily in Australia.

This means the SMSF’s strategic decisions are regularly made, and high-level duties and activities are performed, in Australia. It includes formulating the investment strategy of the fund, reviewing the performance of the fund’s investments, formulating a strategy for the prudential management of any reserves, and determining how assets are to be used for member benefits.

In general, your fund will still meet this requirement even if its central management and control is temporarily outside Australia for up to two years. If central management and control of the fund is permanently outside Australia for any period, it will not meet this requirement.

3. The fund either has no active members or it has active members who are Australian residents and who hold at least 50 per cent of:

The total market value of the fund’s assets attributable to super interests; or

The sum of the amounts that would be payable to active members if they decided to leave the fund.

Note: For the purposes of condition three, a member is an ‘active member’ if they are a contributor to the fund or contributions to the fund have been made on their behalf.


Appointing a power of attorney

If you’re a member of an SMSF and are planning to move overseas, appointing a resident enduring power of attorney (POA) to act as the trustee on your behalf may be an option.

Note: your replacement will be governed by the fund’s trust deed and will need to comply with the Superannuation Industry (Supervision) Act.

You can appoint a POA by following these steps:

  • Choose someone who is a resident of Australia that you know and trust to provide the services;
  • The individual will need to complete a trust deed addendum, consent to act as trustee and a trustee declaration;
  • If your fund has a corporate trustee, the directors of the corporate trustee will need to inform ASIC of the change. The POA will then need to be added into the fund as an alternate director; and
  • Inform the ATO of the appointment of the POA.

ATO case study

Andrew works for a large international group of companies. He and his wife, Jane, are trustees and members of their SMSF.

From 1 February 2009 Andrew is transferred to an overseas company for an indefinite period of time. In accordance with the relevant state legislation, Andrew and his wife each execute an enduring power of attorney in favour of their trusted friend and retired accountant, Trevor.

In addition, Andrew and Jane both resign as trustees of their SMSF and appoint Trevor as the trustee.

The appointment of Trevor as trustee is. Other than the fact that Andrew and Jane are not trustees of the SMSF, the superannuation fund satisfies the other requirements of the definition of an SMSF.


Winding up your fund

In many cases, trustees who know they will be away from the country for more than two years may choose to wind up their fund.

Here are some steps you should consider if you’re looking to close your fund, which a financial adviser can help you with:

  1. Check the trust deed of the SMSF – The trust deed may include wind-up instructions, so this should be your first step.
  2. Written agreement – All trustees or directors will need to agree about the wind-up and you need to document their decision. This is vital to avoid unnecessary complications.
  3. Pay existing member benefits – You need to payout or rollover the balance of members’ super to another fund; this may involve selling assets or transferring them without selling the underlying investment (in-specie transfer).
  4. In the case of pension members, trustees must ensure that at least the minimum pension (pro rata) has been paid.
  5. Prepare draft financial statements – Draft financial statements are important as they determine the value of each member’s benefits.
  6. Sale or transfer of assets – Trustees must arrange the sale of assets or arrange for them to be transferred in specie either to the member, if exiting super altogether, or to the receiving fund directly if rolling over.
  7. Final accounts and audit – A final set of accounts and an audit must be completed before you lodge your last SMSF annual return, making sure to indicate your fund is being wound up.
  8. Tax and compliance – You need to pay any outstanding tax and other debts (or arrange to) before closing your fund’s bank account.
  9. Notify the ATO – Notify the ATO in writing within 28 days of the fund being wound up.
  10. If you’re a corporate trustee, the steps may be slightly different and you may want to apply to ASIC for a voluntary deregistration of the company.

Source: netwealth.com.au


Cash rate sits at record low

The Reserve Bank of Australia (RBA) recently announced an unprecedented reduction in the official cash rate of 0.25% to 1.00%, which is the lowest on record.

This will have implications for cash returns on fixed interest investments such as term deposits which are often a significant portion of a Self-Managed Superannuation Fund (SMSF) investment portfolio. It will also impact on self-funded retirees who have assets outside of superannuation.

Whilst most banks and financial institutions have factored in these rate cuts to some extent, the full impact will be felt once existing term deposits come up for renewal.

There is some debate among analysts around what economic changes can be expected over the next 12 months. Many commentators are predicting a further rate cut of at least 0.25% this calendar year with further consequential effects on cash investment returns.

The future is bright for SMSFs, however these lower cash returns may result in slower growth of some superannuation balances and, for those in pension phase, the possibility of having to sell assets to meet minimum pension withdrawal standards.

Cash assets are traditionally seen as being more capital secure than growth investments (such as shares) but in a very low interest rate environment there are risks of erosion in the real value of cash based investments (i.e. where returns are less than the inflation rate).

Trustees of a SMSF would be wise to review their existing investment strategy, particularly in regard to target asset sector allocations (fixed interest, equities, property, etc.). Any changes to an investment strategy should take into account relevant considerations such as; a member’s age, immediate plans for their SMSF, whether the fund is in accumulation or pension phase, risk appetite of the members, the need for diversification of investments and liquidity requirements. Trustees should considering seeking professional advice to assist in this process where appropriate.

Bob Locke – CA SMSF Specialist – CEO of Practical Systems Super

The information and examples provided in this article are general in nature and do not take into account personal circumstances, needs, objectives or financial situation. This information does not constitute financial or taxation advice. Before acting on any information in this article, the reader should consider its appropriateness in relation to their personal situation and seek advice from an appropriately qualified and licensed professional.

Practical Systems Super – June Newsletter

In this bi-monthly newsletter we examine SMSF strategies surrounding contribution caps and we showcase the statistics recently released by the ATO which outlines the continued growth of the SMSF industry.

Kim Collins, Tamworth

“I have been a Chartered Accountant for approximately 38 years, 28 of those being as a Principal or Partner in Accountancy Practices.

I have known Bob for 30 of those years in his position as a Chartered Accountant also.

I commenced my first Self Managed Superannuation Fund in June 1984.

When Superannuation Fund Regulations required Self Managed Superannuation Funds to be audited, Bob was appointed as auditor of my Funds.

Over the period that Bob has been auditor of my Self Managed Superannuation Funds I have not only received a Professional Service from him as an auditor but also proactive advice in respect of my role as a Director of the Corporate Trustees of the funds. As a result I have no hesitation in contacting Bob in respect of any query that I may have in respect of Self Managed Superannuation and as such would have no hesitation in recommending Bob as a Self Managed Superannuation Specialist.”

Accepting EOFY contributions after 30 June

Under certain conditions, an SMSF may be able to accept an end of financial year contribution after 30 June; however, getting this wrong may have far-reaching tax implications.

Typically, SMSF contributions aren’t counted until the payment is received in the fund’s bank account. The problems start, however, when 30 June falls on a weekend or Monday, as this provides minimal scope for contributions to be accepted at the last minute.

The secret to maximising end of financial year contributions is understanding the conditions that create the opportunity to accept contributions even after 30 June.

What is a contribution?

According to TR 2010/1, the ordinary meaning of a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose purpose is to benefit one or more particular members of the fund or all of the members in general.

The capital of an SMSF may be increased directly by:

  • Transferring funds to the superannuation provider,
  • Rolling over a superannuation benefit from another superannuation fund,
  • Transferring an existing asset to the superannuation provider (an in-specie contribution),
  • Creating rights in the superannuation provider (also an in-specie contribution), or
  • Increasing the value of an existing asset held by the superannuation provider.

The capital of an SMSF can also be increased indirectly by:

  • Paying an amount to a third party for the benefit of the superannuation provider,
  • Forgiving a debt owed by the superannuation provider, or
  • Shifting value to an asset owned by the superannuation provider.

Upon further inspection, TR 2010/1 also outlines the circumstances where contributions can be lawfully received by a fund after the end of the financial year.

Payment by cheque

A contribution is made when a personal cheque or money order is received by the SMSF trustee. As cheques can’t be cashed immediately, the question is whether the fund can still accept the contribution without having the money deposited into the fund’s bank account.

The answer is, the contribution can be accepted as long as the cheque is dated on or before 30 June, and it is presented “promptly” within a few business days.

To this end, a contribution received into the fund’s bank account in late July would be questionable and, if received in August, would not be accepted without extenuating circumstances.

In the situation where the cheque or note is dishonoured, no contribution will have been made by the member.

Electronic payments

The rule of thumb is that an electronic funds transfer is made when the amount is received in the fund’s bank account.

Technically, a BPAY payment must hit the fund’s bank account prior to 30 June. The reality is that a transfer of funds only between the member’s personal linked accounts at the same financial institution results in simultaneous debit and credit to those respective accounts.

When 30 June falls on a weekend, such as in 2019, it is common for the bank statements to show the transaction occurring on the next business day, which means the contribution falls into the next financial year.

The personal contribution will be allowed, however, where an SMSF trustee can provide evidence that substantiates the transfer, such as a bank transaction statement or other print-out that records the receipt of the amount into the fund’s bank account.

In-specie contributions

Remember, too, that an SMSF acquires the beneficial ownership of listed shares by way of in-specie contribution when the trustee obtains a properly executed off-market share transfer form.

It is the date on a properly executed off-market share transfer form is the date of acquisition, not the date that the share transfer is effected by the share registry. Understanding this distinction — and filling in the form correctly — can be the difference between maximising contributions in the current financial year or exceeding the caps in the following year.

The NPP solution

The introduction of the New Payments Platform (NPP) will resolve the transaction lag of electronic payment by facilitating faster payments for the benefits of SMSF members.

Eliminating transaction lags will enable critical payments in superannuation to be processed without delays and hidden costs.

Contributions to SMSFs from employers, top-up contributions by members, and payouts to members and other funds will start happening in real time once this technology is adopted by all banks and financial institutions.


Getting contributions wrong can have far-reaching tax implications for SMSFs. The use of new technologies, such as the NPP, will stop a member accidentally breaching their contribution caps where contribution limits change between years, such as the reduction in non-concessional caps from $180,000 to $100,000 in the 2018 financial year.  

Until then, taking advantage of the few exceptions available in TR 2010/1 may provide some assistance in ensuring that contributions are maximised in the current financial year, regardless of what day 30 June falls on.

Source: SMSF Adviser

Younger SMSF clients seeking transparency, ethical investment focus

While ATO statistics indicate a slight rise in the number of younger SMSF trustees, advisers looking to attract and retain these younger clients may need to tailor their current service offering, according to a wealth management platform.

Shannon Bernasconi, the managing director and co-founder of Wealth O2, a wealth management platform for advisers, said advice firms looking to target a younger a demographic of SMSF clients should ensure their service has a focus on ethical and sustainable investments, high-touch content and transparency.

Statistics released by the ATO in May indicate there has been a slight rise in the number of younger individuals setting up SMSFs, with 79.8 per cent of the individuals establishing new funds below the age of 55. Around two-thirds of SMSF entrants are now under the age of 50.

Ms Bernasconi explained that younger clients have a much bigger focus on ethical and sustainable investments, so advice firms looking to target this segment of the market will need to be able to cater to this in how they manage client funds.

“You need to be able to override or substitute different assets, so if a client has an ethical issue with oil or mining, for example, it can be substituted with another investment,” she said.

Having transparency around the investments in their portfolio is also critical to younger clients, she added.

“They’re not as trusting as older generations. They like the idea of having transparency and that everything is clear in terms of where their assets are and how you’re managing them,” she said.

Having this transparency, she said, provides them with a greater sense of control over their own money and portfolio.

They also want to hear from their adviser more than once a year, she explained, so advisers may want to look at providing automated newsletters and communication on a regular basis.

“They should be looking at providing high-touch content with low administration. To be honest, the older generations also like this, but the younger generations demand it,” she explained.

“It’s important to keep them constantly updated, even if it’s just a bit of news. There’s so much going on in the world these days and they want to know that you’re going to look after their portfolio if something happens with Trump in a particular week.”

She also stressed that younger clients want to have instant access to their portfolio and client portal through their phone and other devices at all times.

“That digital connectivity is a huge must,” she said.

Source: SMSF Adviser